WTO Members Question US on Section 232 Autos Probe, Warn of Growing Risks From Metal Tariffs

5 July 2018

The US’ duties on imported steel and aluminium, as well as an ongoing investigation on whether automobile imports also pose a national security risk, took centre stage during a meeting of the WTO’s Goods Council in Geneva this week. Dozens of members questioned the US on what these could mean for the functioning of global value chains, the potential costs for consumers, and the implications for the multilateral trading system. 

The discussion, which followed a request by Japan and Russia to put the issue on the agenda, comes as a series of “suspension of concessions” measures and new disputes are being notified to the global trade club from various members as a response to the steel and aluminium duties. 

The WTO’s Goods Council is the body which addresses different aspects relating to the organisation’s General Agreement on Tariffs and Trade (GATT), one of the main accords to deal with goods trade. While the US’ Section 232 investigation on cars, along with Section 232 tariffs on steel and aluminium, were a high-profile item on the agenda, they were far from the only one, with delegations also tabling issues ranging from the approval of various waivers to country and product-specific questions or concerns. 

Section 232 refers to the provision of the US Trade Expansion Act of 1962 that provides for national security-focused investigations into imports upon the request of an “interested party” or via self-initiation by the US Department of Commerce, along with the possibility of the US executive branch taking responsive action should such a probe find a national security risk, either in practice or as a possibility. 

Spectre of car duties draws scrutiny

The possibility that the US could eventually impose tariffs on vehicles ranging from cars to SUVs, and do so on national security grounds, has stoked tensions across the globe, both with other countries who are major producers and exporters of cars or their component parts, as well as with major US auto producers and other stakeholders. Critics have raised questions over the systemic implications, the possibility of rising production and consumer costs, and the disruption of current production chains. 

The US announced in late May that it would be launching a Section 232 investigation on the subject, which is being conducted by the country’s Commerce Department. (See Bridges Weekly, 31 May 2018

Sources say that Japan and Russia had questioned what Section 232 duties on automobiles and auto parts could mean for the system, with Tokyo asking whether this would lead to an avalanche of responsive measures, while Moscow cited concerns over whether Washington was losing trust with the rest of the membership by pursuing this type of investigation more frequently. 

Various members, such as the EU and China, took issue with the national security aspect of a Section 232 investigation into cars, either noting that most of the automobile types are for non-military use or highlighting that cars are already being produced in significant quantities in the US. According to a Geneva trade official familiar with the meeting, a host of other delegations of varying economic weights also took the floor to raise their concerns. 

These included Brazil, Canada, Costa Rica, Hong Kong, India, Mexico, Norway, Qatar, Singapore, South Korea, Switzerland, Thailand, Turkey, and Venezuela.

Growing tally of disputes: Russia files case on US metal tariffs

The Section 232 tariffs on steel and aluminium have already been raised in various meetings of other WTO bodies, including at the General Council level in May, and emerged again at this week’s meeting. Sources say that the commercial impact both for the US’ trading partners as well as for the US itself was raised by various delegations, who also criticised some of the procedural challenges they have faced in obtaining any product exemptions from the relevant American authorities. 

The Section 232 tariffs on these metals were nearly global, with only a handful of countries securing exemptions from the tariffs, mostly in the form of quota deals with the United States. These include Argentina, Australia, Brazil, and South Korea. 

The Goods Council meeting came just on the heels of the European Commission’s move to publish the comments it had submitted to the US Commerce Department on the Section 232 autos investigation, questioning the investigation’s premise, WTO legality, and implications for the US economy. 

Meanwhile, earlier this week Russia filed a request for consultations with the US on the Section 232 tariffs on steel and aluminium, which is the first step in launching a WTO dispute. The document, while dated 29 June, was circulated to members on 2 July. 

The complaint outlines a series of claims of alleged WTO rule violations, with Russia arguing that the Section 232 measures on steel and aluminium go against both the General Agreement on Tariffs and Trade (GATT) as well as the Agreement on Safeguards. Similar complaints have also been filed by Norway, Mexico, Canada, the EU, India, and China. 

All complaints have referred to both agreements, and some have also referred to the Marrakesh Agreement Establishing the WTO, Article XVI:4, complaining that the US failed to ensure its domestic rules and regulations are in line with its WTO obligations. 

The issues listed across the seven complaints overlap significantly, with a few occasional differences, and all treat the US Section 232 measures as safeguards. Those are measures that a WTO member can impose in response to an import surge that does or could threaten domestic injury, subject to certain conditions, such as these safeguards being temporary, notified in advance, and that the affected exporting countries are consulted and potentially compensated for the economic hit. 

Overall, the seven complaints submitted to date all argue that the US failed to meet various procedural and substantive obligations required under global trade rules for imposing a safeguard measure, such as proving that domestic industry is or could be under threat, among others. 

The seven cases listed to date often have overlapping requests of members wanting to join the consultations. The consultations requests all contain the legal basis where the admission of interested third parties would depend on the respondent, specifically the United States. There has been no formal notification of acceptance to those requests. In practice, if the request to join consultations is not accepted, the rejected third party member can opt to request consultations directly with the WTO member concerned. 

Along with the members who have lodged disputes, there are a few other members, such as Hong Kong, Thailand, and Turkey, who have similarly asked to join consultations, while not yet filing disputes of their own. 

Several members have also notified the global trade club of plans to impose additional duties on US imports, filing these notifications under the WTO’s Agreement on Safeguards as the “suspension” of “substantially equivalent concessions” under Article 8.2 of that accord. That provision deals with the steps that “affected exporting members” can take if consultations with the member imposing the alleged safeguard fail to bear fruit within a 30-day period. 

Those members that have notified the WTO of their plans include the EU, China, India, Japan, Russia, and Turkey. Of these members, Turkey is the only one not to have filed a related WTO dispute. 

Some countermeasures, such as the EU’s, are already in place, though could evolve further pending the outcome of dispute settlement proceedings, while some others are pending additional details. Canada and Mexico have also indicated their plans of imposing additional duties on US products, but have not filed formal WTO notifications to that effect. 

All told, the duties that the US may face from the above-mentioned partners could range between US$2.6 billion to US$3.7 billion, and potentially higher should other WTO members follow suit. 

Late last month, US Trade Representative Robert Lighthizer previewed what approach Washington will be taking in defending these measures to its WTO trading partners, lobbing his criticisms specifically at the EU while noting that other countries or country groups were following similar approaches. Rather that treating the Section 232 tariffs as safeguards, he argued that these instead are national security measures and should be considered under the relevant WTO provisions on that subject. 

“Article XXI of the General Agreement on Tariffs and Trade gives broad authority to WTO members to take action necessary to protect essential security interests. For decades, the United States has consistently held the position that actions taken pursuant to Article XXI are not justiciable by any panel of the WTO. In other words, each sovereign country must have the power to decide, for itself, what actions are essential to its security,” he said, defending the steel and aluminium tariffs. 

“Rather than work with the United States, [the EU and others] have retaliated with tariffs designed to punish US companies and workers. In an effort to give cover to this blatant disregard for WTO rules, they claim to be acting in reliance on a narrow exception that applies only in response to a safeguard measure.  That exception does not apply here, however, because the United States has not taken a safeguard measure,” Lighthizer continued. 

ICTSD reporting.

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